Manufacturing remains in doldrums

April 01, 2004 |

By Jim Haughey, Reed Business Information Economist

Manufacturing remains in a progressive long-term decline, but, cyclically, is now at the bottom of its business cycle. Available manufacturing space fell 0.1% to 11.6% in the fourth quarter, according to the CB Richard Ellis survey. This was as likely due to retirement of facilities as absorptions, because both manufacturing construction spending and employment declined through the end of 2003. Although the computer and electronics industry has been expanding rapidly for a year, layoffs of its production workers and shutdowns of technology factories have continued.

The lowest vacancy rates of 6-7% are in metro New York, where the dominant process and packaged goods industries have had a milder recession and experienced less foreign outsourcing. The highest vacancy rates of about 20% are in the high-tech centers in Boston, Austin, Texas, Jacksonville, Fla., and Las Vegas.

Manufacturing will experience a strong rebound in 2004-06, masking the long-term declining trend. Employment declined only 3,000 jobs in February and likely actually rose, including a small share of 22,000 new jobs reported by temporary help agencies. Monthly factory job declines have averaged 70,000 since July 2000. Net hiring will not be significant until midyear. While manufacturing shipments have increased an average of 1% a month since last May, labor productivity gains have not been enough to increase hiring. Productivity improvement will slow after the easy fixes have been made and as the manufacturing recovery spreads to more non-electronic industries.

The recovery is already broadening. Many space-intensive machinery industries have recently reported large enough rises in orders to announce callbacks or hiring. This includes farm, construction, mining, materials handling, HVAC, power transmission, and metal working machinery, as well as heavy trucks and trailers. More workers mean a pickup in space renovations this year and added space in 2005-06.